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Equilibrium bond-pricing models rely on inflation being bad news for future growth to generate upward-sloping nominal yield curves. We develop a model that can generate upward-sloping nominal and real yield curves by instead using ambiguity about inflation and growth.

What path should policy-makers select for the nominal rate when faced with a liquidity trap during which the effective lower bound binds?

Aggregate consumption impacts of heightened job risks during recessions can arise either from ex-ante responses to the fear of unemployment or from ex-post consumption declines due to realized income losses. We use survey-based perceptions of job risk and actual labor market transitions to quantify the relative contributions of these two channels. We further show that belief stickiness limits the extent of ex-ante insurance against job risks.

In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements. When the market perceives that the Bank of Canada plans to tighten (or alternatively, loosen) the monetary policy earlier than previously expected, the Canadian dollar appreciates (or depreciates) and long-term Government of Canada bond yields increase (or decrease). The tone of a statement is particularly relevant to the market when the policy rate has been unchanged for some time.

The recent financial crisis has led to the development of new regulations to control risk in designated payment systems, and the implementation of new credit risk management standards is one of the key issues. In this paper, we study various credit risk management schemes for the Canadian retail payment system (ACSS) that are designed to cover the exposure of a defaulting member.

We evaluate, both empirically and theoretically, the spillover effects that debt-financed fiscal policy interventions of the United States have on other economies. We consider a two-country model with international portfolio rebalancing effects. We show that US fiscal expansions would increase global long-term rates and hinder economic activity in the rest of the world.

While demographic change has been an ongoing process in Canada, labour market implications of an aging population will become more acute in coming years. This article discusses the anticipated slowing in the growth of trend labour input over the coming decades with the aging of the baby boomers, declining fertility rates, and the stabilization of the labour force attachment of women. As the pool of labour shrinks, employers and governments will be looking for ways to address barriers to continued labour force participation and firms will have a greater incentive to find ways of improving labour productivity.

This article examines recent research on the influence of various forms of economic uncertainty on the performance of different classes of monetary policy rules: from simple rules to fully optimal monetary policy under commitment. The authors explain why uncertainty matters in the design of monetary policy rules and provide quantitative examples from the recent literature. They also present results for several policy rules in ToTEM, the Bank of Canada's main model for projection and analysis, including rules that respond to price level, rather than to inflation.

This paper presents four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile. We argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds and thus lowering their cost at issuance.